Special Message from Executive Committee
On 9/7/06, Chairman Dianne Black-Nixon wrote to you regarding some extremely serious issues facing the Society. Much has transpired since then, and been communicated via the SSA website and eNews. To make certain all members are now aware of what actions have been taken by leadership, it was decided to send this follow-up letter, which takes up where the first one ended. For details, please refer to multiple postings already on the SSA website.
It was discovered that Alan Gleason, the SSA Chief Financial and Administrative Officer, had not only failed to pay state and federal payroll withholding taxes for several years, but had also apparently fraudulently manipulated Society financial statements. He was terminated on 9/5/06. Six days later, evidence of other apparently fraudulent activities by him was turned over to the Hobbs, NM Police Department, which has since engaged in a criminal investigation. Further evidence continues to be uncovered, but as of today, funds apparently misappropriated are in the range of $150,000. Hobbs police have been in touch with the New Mexico District Attorney’s Office regarding criminal prosecution. The SSA initiated a civil suit for recovery against Mr. Gleason on 9/26/06.
On 10/11/06, using funds loaned from the SSA Foundation, SSA paid delinquent federal payroll withholding taxes of approximately $208,000, and state withholding taxes of approximately $56,000. Our outside accountants are completing the remaining delinquent federal and state income tax returns (upon which no taxes will be due) for 2004 and 2005. Once submitted, SSA will be up to date in all respects with state and federal tax authorities. It is likely the IRS will require the SSA to pay interest on the overdue taxes, but we are working to mitigate all penalties. State tax payments will most likely not incur interest or penalties.
The SSA was unable to secure a commercial loan on terms it could meet, to pay its delinquent taxes. Had the SSA Foundation not financially assisted the SSA with this loan, tax authorities could have seized SSA funds held by the Foundation in a single investment account. The choice before the Trustees of the Foundation was to either provide a loan to the SSA with the expectation of repayment (with 8.25% interest - higher than that presently generated by the Foundation’s investment account as a whole), or risk seizure of assets to cover what the Society owed. If seizure was required, the amount taken from the Foundation could total nearly $600,000, since no mitigation of penalties would likely be possible in this situation, and the funds would be gone forever.
Risk to and financial growth of all the “buckets” of restricted and unrestricted donations in the SSA Foundation are shared equally, with investments in stock mutual funds, money market funds and bond mutual funds (investing in debt) in the same Fidelity investment account. Provided the SSA meets its obligations to repay principal and interest on the loan, the benefits available for the beneficiaries of restricted fund “buckets” (such as the US Soaring Team and the Soaring Safety Foundation) should not be affected.
At its 9/30/06 meeting, the SSA Board approved changes to the Society directed at both its short-term financial survival, as well as its long-term reorganization, that will support repayment of the Foundation loan. An already instituted Emergency Business Plan Task Force (EBPTF) is comprised of all Excomm members, Secretary Dean Carswell, and Director Al Tyler. They will utilize financial performance data and projections supplied by the SSA Treasurer and Accounting Manager to make business and operational changes required in the short term that will ensure the financial stabilization of the SSA until December 31, 2007. At that time this task force will cease to exist, and all Excomm members (besides the new Treasurer, who will have taken office and joined the SSA Board and Excomm for the first time on 1/1/07) will no longer serve as Chairman or Vice Chairmen of the Board. This will require the Board to elect an entirely new Excomm. To prevent being influenced by conflict of interest, three independent SSA members (Misty Roland, JD, Tom Dixon, and David Pixton) have accepted responsibility for observing all activities of the EBPTF and the Excomm while the task force exists.
The SSA has engaged a Certified Fraud Auditor and is pursuing all means available to discover and recover funds that may have been misappropriated. Potential sources of recovery are our business insurance policy (with employee dishonesty coverage limits in the range of $100,000 – notice of an impending claim has already been filed), criminal and civil suits, (that could lead to restitution and property lien/foreclosure), demands against individuals who have received misappropriated funds, and others. All SSA financial polices and procedures will be reviewed to ensure that appropriate checks, balances, and internal controls are in place. A separate independent consultant has already reviewed internal office controls for cash processing, and has recommended procedures that are being implemented. A complete audit is planned.
Many members have asked if SSA’s endowed funds held by the Foundation are intact. There is no evidence money already in the Foundation account was misappropriated. On 9/22/06 Excomm learned that a donation of approximately $84,000, which was to have been deposited by Mr. Gleason into the unrestricted Operating Reserve Fund “bucket” held by the Foundation, was in fact, deposited into SSA’s operational account at Lea Co. State Bank. Approximately 3 months later, Mr. Gleason moved only approximately $27,000 from Lea Co. State Bank into the Foundation. The fate of the $57,000 difference is under investigation. It was either misappropriated, or used to pay legitimate SSA expenses.
On 9/30/06 the SSA Board of Directors accepted the resignation of Executive Director Dennis Wright. We stress that no evidence of illegal activity by Mr. Wright has been found. Consideration will be given to conducting an Executive Director search shortly. Ms. Denise Layton has been appointed SSA Office Administrator. Ms. Judy Blalack has been hired as Accounting Manager, and will be in charge of financial matters. The Chairman of the Board and Treasurer will be meeting with Ms. Layton and Ms. Blalack weekly; Excomm members will attend weekly staff meetings via conference call, and make themselves available as needed to support the staff. The office is running well, SOARING magazine will be published on time, and SSA members continue to be served.
Most importantly, the Board voted to urgently establish a Future Restructuring Task Force (FRTF). Director Rick Sheppe (who will not be a member of this task force) was tasked with populating it with people representing the broadest range of interests within soaring. This task force will present a Society reorganization proposal to the SSA Board at its fall, 2007 meeting. Changes are to be in place by January 1st, 2008, one day after the EBPTF will cease to exist. It is intended that these changes will create a financially viable organization that, to the greatest extent possible, meets the needs of the membership.
How did the SSA wind up in this situation? First, our hired management failed us. Second, while SSA Bylaws require yearly audits, between 1987 and 2002, only two occurred (outside reviews were done in other years). The SSA hired Mr. Gleason as its first CFAO in March 2002. In retrospect, this may have led to a false sense of security by the Board. Between 2003 and the present, the SSA has had forty-three different Directors, many serving as officers. After the fall 2003 Board meeting, audits or reviews were never discussed in any Board meeting by anyone. This was an obvious, very serious failure of well-meaning volunteer Directors.
The critical issue is what happens to our Society going forward. The SSA has always been a very marginal business, operating on a razor’s edge. Now is the time for transformation, and leadership is committed to the goals of financial viability and improved membership service.
C. Dianne Black-Nixon, Chairman of the Board
Jim Skydell, First Vice Chair
Doug Easton, Vice Chair
John Volkober, Vice Chair and Treasurer
Dean Carswell, Secretary
Addendum: Late-Breaking Information Not Appearing in the Printed Letter to Members:
On 10/9/06, SSA Ex-CFAO Alan Gleason was served with a civil lawsuit brought by the SSA. On 10/11/06, at the direction of the New Mexico District Attorney, he was arrested by the Hobbs Police Department